Why Kill the Medicare Advantage Demo?

Earlier this week the General Accounting Office released a report critical of a Medicare Advantage bonus plan that rewards the performance of what the GAO views as just average plans. The cost adds up to around $8 billion over 10 years, with most expenditures occurring during the first three years.

While the GAO study seems fairly complete and certainly nonpartisan, I wish there had been some analysis of what taxpayers are getting for their $8 billion. As the GAO left it—calling for the immediate termination of the program—the report is fodder for every anti-healthcare reform-minded politician, blogger, pundit, columnist, and citizen journalist with access to a keyboard.

The Centers for Medicare & Medicaid Services' five-star star program has been around for about five years. Health plans weren’t initially crazy about the methodology (they still aren’t) and didn’t begin to take the program seriously until the 2010 Patient Protection and Affordable Care Act attached cash and other perks to the star system.

The Affordable Care Act set the minimum bonus standard at four stars on a one- to five-star scale, but six months later CMS announced that it would delay implementation of the ACA bonus plan until 2015. In the meantime, it announced an alternative plan (Medicare Advantage Quality Bonus Payment Demonstration) that extended the bonus option to three-star plans.

The bonus for three-star health plans is a sticking point. The GAO is not alone is contending that the demo is just a back-door way to restore to health plans some of the reduced Medicare payments included in ACA. The independent Medicare Payment Advisory Commission, which advises Congress on Medicare issues, has warned that demonstration projects "should not be used as a mechanism to increase payments."

I think that in their assessments the GAO and MedPac are missing some important points. First, the demo is temporary, with a brief three-year lifespan: 2012 through 2014. That means the three-star plans have only three years of bonus eligibility.

Second, the bonuses are on a sliding scale. No health plan is going to be content with a three-star rating if it can make some changes and become a four- or even five-star plan with a larger bonus, some great perks such as year-round enrollment, and major bragging rights.

The list of health plans with three- or three-and-a-half-star ratings reads like a who's who of health plans with Aetna, Humana and UnitedHealth Group all looking for ways to improve their scores.

During an earnings call last year, Humana officials said they planned "to invest heavily in improving our stars' processes, procedures, and infrastructure to position us for further improvements in star metrics."

United has reportedly set the goal of having all of its more than two million Medicare Advantage demo members in four-star or better plans by 2014. Aetna has established a dedicated business team to drive the improvement of its performance in the stars program. And, WellPoint officials have linked the acquisition of CareMore, a Medicare Advantage plan, with its efforts to achieve higher quality star ratings.

And finally, we're talking about a paradigm shift from payment-for-volume to payment-for-quality. That takes some adjustment. The demo just makes the change a little easier. Think of it as kickstarting the quality improvement process.

According to the GAO figures, $3 million will cover increased enrollment in the Medicare Advantage demo as beneficiaries switch from fee-for-service. I thought that was the point of the program—to move beneficiaries away from the volume-based care of FFS to quality-based care.

The GAO report also notes that much of the increased Medicare Advantage demo enrollment will occur in average-rated plans, which is where most of the membership is concentrated now. But that's probably because most of the large enrollment plans such as Humana and UnitedHealth are currently three-star plans. They have no intention of staying at that position,  and will most likely take their enrollment with them as they improve their ratings.

The CMS star rating program is based on more than 40 different Medicare Part C and Part D quality measures. Information is compiled from member surveys, physicians, and CMS reports, as well as the results from regular Medicare monitoring activities.

It's not a static process. According to a consultant who works with Medicare Advantage demo clients, the star program gets tougher each year. Quality measures change as a majority of healthy plans achieve competencies, explains Nathan Goldstein, CEO of Gorman Health Group, a Medicare managed care consulting firm in Washington, DC. Health plans will need to work very hard just to maintain their star rating; moving up will require a concerted effort.

And no slacking will be allowed. Goldstein says CMS has made it clear that it will systematically eliminate poor performers (fewer than three stars) from the MA program.

CMS seems to have developed an effective carrot (bonus) and stick (termination) plan that has engaged the health plan industry. Calling for the program to end really seems like overkill.